Buy that ugly duckling
Lately I have seen more and more multiple contracts. Before preview I call the listings agents to check on the status and most of the bank owned I get the response we already have 5-6 contracts. Does that mean we have reach the rock bottom? Or wait a minute we still have inventory for upto 6 months. Speaking to my other Realtor friends in the area they all are experience the same frustration. While working with one of my buyer recently after writing 5 offers and loosing just because they can only give so much as highest and best offer I went other way around. I looked up the homes that have been in the market for a while and bank/seller are desperate to sell I call them ugly duckling. We previewed bunch of them, they all needed to work, some needed more intense renovation other were cosmetic. Few were priced higher for the condition of the market. I asked my clients to put on their designer glasses. Feel the size and style of the home versus the present condition. After we narrow down couple of homes we called up the contractor to give us an estimate on how much it will cost to make the repairs and the time frame. We wrote up an offer on the home much below the value and had two options to make the renovation done:
First is to get a 203K loan
Or
Second one is to get HomeStyle® Renovation Mortgage
I will go over the programs in a bit but we end up going the first option and after closing and month from that all the work was done and my clients now have a very modern updated home that they would not have gotten if we keep fighting the multiple bids on the home that were priced in their price range.
The Loan options I had mentioned earlier here are the details:
Section 203(k)
Perhaps the most well known product in this group is the FHA's Section 203(k) mortgage, which combines the cost of renovation and the purchase of the house within one loan.
These mortgages are available across the country and, contrary to some misperceptions, can be used on homes in urban, suburban or rural areas, as long as they're at least a year old. The planned renovation work has to total at least $5,000. Interest rates are in line with those for typical home loans, says Vijay Lala, senior vice president of product development and support with Countrywide Financial Corporation, Calabasas, Calif.
Here's how the process typically works: the borrower, having found a house that needs renovation, heads to a mortgage lender that handles 203(k) mortgages. A list of such lenders is available through the Web site of the Department of Housing and Urban Development.
The borrower also hires a HUD-approved consultant, who identifies the rehabilitation projects that are most urgent. Not surprisingly, projects that address health and safety concerns go to the top of the list. Next in line are projects that enhance the value of the house. The HUD Web site also lists consultants.
Then, the lender hires an appraiser to determine the post-renovation value of the house. This is key, because "The benefit of the 203(k) is that you use future value, or the 'after-improved' value," says Lala.
For example, if a home has a price tag of $100,000 and will require $25,000 in improvements, the loan can be for the entire $125,000. The portion of the loan earmarked for improvements is disbursed in installments as the work is completed.
Loan calculations
The final amount of a 203(k) loan will be the lesser of two numbers. The first is the sum of the as-is value of the property plus the cost of the renovation work to be done, and up to six months mortgage payments. The second is the value of the post-renovation property plus 10 percent.
"We take the lower of the two," says Adam Glantz, a New York-based spokesman with the FHA.
In addition, the loan is subject to FHA mortgage limits, which vary across the country. In the Chicago area, for instance, FHA mortgage loans for single-family houses are capped at about $234,000.
The lender will also consider your ability to handle the proposed mortgage loan, based on your credit and work history, says Glantz. He or she will want to be confident that you can handle the monthly payments, which will be based on the cost of the mortgage and the renovation work.
Finally, prospective home buyers need to bear in mind their responsibilities for the success of the renovation.
"The homeowner ultimately is responsible for ensuring that the work gets done," says Doyle. "If they don't know what they're getting into and they're not really ready to manage a project like this, it's better for them to wait, save their money and buy a house in good condition."
HomeStyle renovation
Fannie Mae, a provider of home financing products based in Washington, D.C., also offers a mortgage product that allows borrowers to finance the cost of a house and renovation work within one loan. While Fannie Mae's HomeStyle Remodeler is similar to the Section 203(k) program, it differs in a couple of key ways.
For starters, the mortgage limits are somewhat higher. For most of the United States, loans for single-family houses can go up to $323,000. With a HomeStyle Remodeler loan, that amount would include both the cost of the house itself and the work that's done.
And, Fannie Mae doesn't require the use of a consultant. However, the borrower has to find a licensed contractor, who submits detailed work plans and specifications to the lender, says Jim Matheson, senior product manager with Fannie Mae. Before signing off on the loan, the lender determines whether the work proposed is likely to add value to the property. While Fannie Mae doesn't specify the types of repairs allowed, the work has to be on structures that are permanently attached to the property.
Source:Bankrate.